My accountant tells me I am OK to use the targeted advance to acquire the new shop space but Im looking for a second opinion. Id suggest you talk to the SBA or your SBDC. Does this fit within the guidelines of the loan? Example: My monthly revenue is 150k, and my (business only, not the new construction) expenses are 120k all going in and out from the same account. But says, I dont have to pay him anything. Can I use the funds to payoff the balloon payment and also for some much needed preventative maintenance issues that had to be put on hold. If not then it may be questionable. So, i am going to pay off the SBA loan before the end of the year because the restrictions give me an anxiety. We were unable to find an official SBA definition of working capital, but generally, working capital loans are generally used to pay day-to-day expenses of the business. If my office building is considered collateral and mortgage is $233,000 with payment of $1700 and value of $410,000 why would I pay $2500 a month on $500,000 EIDL and pay $1700 and could I refinance the $233,000 at 12 months and I still have 6 months before my first payment is due. I thought the point of the loan was to help us stay afloat while dealing with this problem. Disbursements to owners, partners, officers, directors, or stockholders, except when directly related to performance of services for the benefit of the applicant;. The guidelines for EIDL generally can be found in this document. What about for the lump payment the short term lender usually asks for? Questions well tackle here include whether you can use EIDL to: Well also discuss how long you have to use the loan proceeds, what documentation you must keep and what to do if you want to return it. A business that does not experience economic injury may want to consider returning the funds. If you have specific questions I suggest you reach out to the SBA or an SBA resource partner such as your SBA local office, SBDC or SCORE. loan proceeds must be used only for eligible payroll costs and certain eligible nonpayroll costs as set forth in program . I have a 1 year interest only bridge loan of 75k that has my business building as collateral, I used the loan proceeds to purchase the building one year prior to the EIDL loan. Can you please provide any recommendations? The SBA states that EIDL can't be used to pay: "Disbursements to owners, partners, officers, directors, or stockholders, except when directly related to performance of services for the benefit of the applicant." And by this definition, this means that a business owner can continue to pay themselves a working wage. These might include salaries, inventory, rent, utilities, and short-term debt or long-term debt payments, for example. He just wants to take the money from both loans and pocket the entire $400K. Businesses with fewer than 500 employees, certain nonprofits, and agricultural businesses can apply and be approved if they meet all criteria set by the SBA. These low rates have led many to ask whether they can use these funds to pay down or refinance other small business loans. Can I buy a place with it? However, being fearful of what expenses can or cannot be used, I have loaned my company several thousand in the interim to keep payroll, short term expenses and day to day expenses. Many SBA regional offices are holding office hours to answer questions about these loans and that could be a good opportunity to get an answer to your question. So the pandemic hit and not being able to pay the existing rent from not working, there I decided to leave the salon for both of those reasons. While there is no comprehensive list of how EIDL funds may be used, if youre trying to err on the side of caution, there are clues in the section of the SOP that describes how to calculate economic injury. The COVID-19 pandemic was an unprecedented, nationwide disaster. EIDL proceeds can be used to cover a wide array of working capital and normal operating expenses, such as continuation of health care benefits, rent, utilities, and fixed debt payments. Many small business owners arent familiar with the term working capital, though, and as a result they find that description confusing. Just a small cleaning business. Keep in mind we will share and discuss guidance from the SBA here but we cant and dont speak for them. Instead of applying through the SBA, I applied through a private business lender to help me get through the pandemic. Millions of the Small Business Administration's Covid EIDL loans are now coming due, and experts say borrowers have few options if they can't pay. Will paying off debt be ok if that debt was incurred during Covid. The PPP was designed to continue your 2019 payroll for a period . She since has left the marriage and stated that she is the signatory of that loan and could not trust me to pay back the installments, Im more concerned about the legality of the moving of the funds for her sake. Ive seen different interpretations of whether we can use our Revenue for items excluded from use from the EDIL. Also, am I able to reimburse for utilities that I borrowed from my savings to stay afloat? But, I was able to keep my employees and grateful for that. Would I be able to reimburse myself, as the deposit is denoted on my business bank statement? You're not alone, after doing some research I'll be answering that question in this video. For example, in the spring, a clothing store located in a disaster area is left with an inventory of winter clothing and has no funds to order summer stock. The 5 Best Banks for Small Business Loans in 2023, Learn more about Disaster Loan eligibility here, contact the SBA or an SBA resource partner, Standard Operating Procedures for disaster loans, Standard Operating Procedures for Disaster Loans, I detailed those resources in this article, reach out to the resources in this article, Disaster Loan Standard Operating Procedures, Standard Operating Procedures for Disaster loans, 7 Questions About PPP and EIDL the SBA and Treasury Need to Answer ASAP. I would use 120k EIDL money to cover regular business expenses and 150k income to use in the new construction. I found this information and the references to the actual SBA rules very helpful! Im glad it was helpful. My suggestion Tom is that you check with the SBA. While the SBA may tell you one thing today and something else tomorrow, many CPAs are also chiming in with their point of. Thank you for a very well written article. News flash! . Keep in mind we will share and discuss guidance from the SBA here but we cant and dont speak for them. The guidance the SBA did release was rather broad and it did not spell out every situation. However, she wont respond to my questions of what she is planning to do with the money. Ultimately I dont have an answer to that question as its not something detailed in the guidelines. You can certainly reference page 75 of the SOP as a guide. Can I use this money to buy parts on online and resell them on ebay? Our interest rate is higher than 3.75%, and isnt amortized for 30 years. Bill As I noted in the article: Economic injury loan proceeds can only be used for working capital necessary to carry the concern until resumption of normal operations and for expenditures necessary to alleviate the specific economic injury (emphasis added). I dont think prepaying debt sounds like it fits in that category but I cant speak for the SBA. The type of work you do to earn your pay does not appear to be restricted. The Standard Operating Procedures dont mention back pay. I am an uber driver. Besides second draw PPP loans the main option is EIDL loans. As long as it goes towards the business ? After all, he SOP states that EIDL cant be used to pay: Disbursements to owners, partners, officers, directors, or stockholders, except when directly related to performance of services for the benefit of the applicant.. LOAN AUTHORIZATION AND AGREEMENT UNLESS SBA, IN ITS SOLE DISCRETION, The SBA states that the EIDL loan may be used to pay past, current or future rent due. As a self-employed person, taxes take up about 13% of my gross income every. I assume that would fall under that category but I dont work for the SBA so please reach out tot them directly to get an answer. Is it true that I wasnt supposed to use the funds to payoff any federal debt? I have an EIDL question: How would I calculate?, Im wondering if there is a limit on how much we can repay ourselves with this loan for lost wages?, It seems clear you cant pay yourself unless its for work you do in your business. Im hanging on by a thread now. We recommend you check with the SBA or an SBA resource partner like SCORE or your SBDC. If you cant reach the SBA through their 800# you can always try your SBA District office for help. Ill note that many sole proprietors are paying themselves (usual compensation) with EIDL funds so it may make more sense to just pay that out of your personal funds. Given how quickly this program was rushed out there were no doubt questions that simply didnt get addressed at the time. COVID-19 EIDLs carry a 3.75% interest rate (2.75% for nonprofit organizations) which makes it less expensive than other types of unsecured small business financing available. Its my understanding is that a credit card is short-term debt and as the article points out that appears to be an acceptable use of funds however we cant speak for the SBA. The best we can do is to try to provide information available from the SBA. We received questions from entrepreneurs whose businesses were not likely to survive the pandemic downturn and wanted to know if they can use funds from one of these loans to start something new: I am an Uber driver and I got approved for an EIDL loan. Im so confused now. Disbursements to owners, partners, officers, directors, or stockholders, except when directly related to performance of services for the benefit of the applicant; Repayment of stockholder/principal loans, except when the funds were injected on an interim basis as a result of the disaster and non-repayment would cause undue hardship to the stockholder/principal; Expansion of facilities or acquisition of fixed assets; Repair or replacement of physical damages; Refinancing long term debt (SBA later made an exception here; see that change described below)). In this case am I correct in thinking it could be used to pay IRS business debt? Do you think EIDL can be used as a down payment to flip a house by a professional house flipping company. He also lost gear due to this. So sorry. We have not seen any indication that will be the case. We were approved, have no employees. The SBA announced September 8, 2021 that it expanded the allowable use of funds to include paying most debts, specifically: SBA is revising the regulation at 13 CFR 123.303, How can my business spend my economic injury disaster loan?, to permit COVID EIDL working capital loan proceeds to be used to pay any type of business debt, including loans owned by a Federal agency (including SBA) or an SBIC. Ive only had money going out and no funds coming in. It states here in this article as well as the SBA SOP on page 75 as you stated here that funds can be used to pay IRS debt. And yes I would encourage you to open a business bank account to manage and track these funds. Im currently not driving because of the pandemic. Id recommend you reach out to your SBA District office to see if they can advise. ; ) But Id recommend you check with the SBA to be sure. Thanks for your reply. Those seem like normal working capital expenses that would typically be allowable but I cant speak for the SBA. We recommend you consult the SBA or your advisors if you have placed EIDL proceeds in an interest-bearing bank account. Due to covid, I had to use my personal savings and retirement funds to keep the business afloat, pay our other employees, independent contractors and expenses. Is these EIDIL loans forgivable during the pandemic? Please notice in the EIDL agreement its states: You can absolutely use EIDL money to generate revenues in your business. Id recommend you consult with the SBA, your SBDC or a legal or tax professional. After all, t he SOP states that EIDL can't be used to pay: "Disbursements to owners, partners, officers, directors, or stockholders, except when directly related to performance of services for the benefit of the applicant." I have a question regarding EIDL loan. The cost of ordering summer inventory represents an additional need., Ineligible Use of EIDL Funds / What You Cannot Use EIDL On. Ana Are those normal business expenses that your business pays or deducts on its tax returns? If you really want to understand these loans, you have to look at the history of this program. Can I use the EIDL funds to replace it? Could you please offer some insight? Spending those funds on a different business could be problematic. Thank you. Seems contradictory. Verdict: Yes, but only for working in your business, Find The Right Financing For Your Business. Since the SBA doesnt spell all out all scenarios, I encourage you to check with them if you have questions about using your EIDL funds. Or, if you have used the PPP to pay salary, then can you not use EIDL for salary no matter what the timeframe? You can also talk with your legal or financial advisors. I woukd like to use the loan to continue with a establish a safe place to continue operating my family childcare in my home. I am the sole owner of a S Corporation. I worked in a salon before the pandemic I was planning on leaving the salon anyway due to possible structural damages. Is it acceptable to pay this with the EIDL to give us a little breathing room? Im sorry its been so difficult for you. Appreciate you compiling it all for us. Your answer to the question Is There a Deadline to Spend EIDL Funds? (Note: the SBA opened up EIDL to religious organizations impacted by coronavirus. On the second expense Im less confident. I dot see why that would be an issue but I dont work for the SBA so feel free to check with them or one of their resource partners if you have questions. I have never had a brick and mortar for my business and would have had the opportunity to sooner if covid didnt happen, so I am viewing the use of this money towards first months rent and security on my first shop space as part of my working capital. U am an UBER driver an I recieved my loan. You can revoke your S Corp and you'll be a Schedule C. You can distribute money to yourself self you pay self-employment taxes on the 100% of the profit, but you cannot take an EIDL to pay yourself this way. Pay Yourself and Your Employees Paying yourself is of the utmost importance. But if you continue to work in your business, paying yourself for the work in the business appears to be a reasonable use of these funds. I have not seen this question addressed in SBA or Treasury guidance unfortunately. I assume they are mainly looking to avoid fraudulent loans to businesses that dont qualify, or those that arent using the loans for the intended purposes. After the emergency is over will we have to return any unused portions of our EIDL grants? I havent seen that specific question addressed in guidance. If I want to return the EIDL funds, can I legally let them sit in a brokerage account for a year before the payments start?, Remember, earlier we pointed out that the SOP states: Economic injury loan proceeds can only be used for working capital necessary to carry the concern until resumption of normal operations and for expenditures necessary to alleviate the specific economic injury.. 1) I received the EIDL loan in December 2020. Hi Gerri! (Note: There is an entire section that goes into more detail on paying federal debts. It may depend on whether your business normally pays for your health insurance. Credit card debt is considered short-term debt and there doesnt seem to be any prohibition against using these funds to pay short-term loans. Paying yourself from EIDL funds is a source of confusion for some. Unfortunately PPP is now closed. Youll need to check with them. Is that allowable? Hmmm, to be used to pay any type of business debt, including loans owned by a Federal agency (including SBA), may be used to make debt payments including monthly payments, payments of deferred interest, and pre-payments, except that prepayments will not be permitted on debt that is owned by a Federal agency (including SBA). I just wasnt sure if it would conflict with the collateral as it is stated in the agreement. the SBA reps dont have answers either. While EIDL funds cannot be used to make direct payments to owners, pay bonuses, or pay dividends to shareholders, EIDL funds can be used for payroll. Hi Jeff I am hesitant to advise on specific situations as I dont work for the SBA. Its confusing out here! They include funds necessary to bring delinquencies current and to restore working capital to normal level. If your car payments are normal business expenses it would seem they would fall under the definition of working capital expenses. Please contact the SBA if you have additional questions. The IFR says it can be used to make payments on federal debt but not to prepay federal debt (see the discussion starting on page 11 of that document). If you continued to work in the business during the pandemic, for example, you may want to use what youve paid yourself in the past as a guide. Do not rely on this article for specific information on how to properly spend your EIDL funds. And second, make sure you are not paying yourself with the EIDL for the same weeks that you paid yourself using the PPP. Try it. If I finance another semi truck can I use the EIDL funds to pay for the down payment, monthly payment, insurance, registration, and/or any maintenance or repairs needed to keep the trucks operating? Andrew It seems that would be a normal working capital expense that should be covered, and its not on the list of prohibited uses, but we cant speak for the SBA. I would suggest you talk to the SBA. I applied for the SBA EIDL loan back in June 2020. I have a work cargo van that I use for my business. Good news! Here's how: Go to the Transactions menu. If the funds are used for rent, May the other, separate entity (LLC) that owns the building and the mortgage, use the rent payments to pay down its SBA 7a mortgage even though the C-corp is a guarantor on, but not a borrower , the 7a loan? Would we total the charges in that time frame and pay it from the EIDL? We tried to provide helpful information in this article but beyond that we recommend you check with the SBA or your local Small Business Development Center/SCORE. Id encourage you to talk to the SBA, SBDC or your legal advisors. Knowledge is a confidence booster! Its kind of a dammed it if I do and dammed if I dont since I may be able to work one day and then be shut down the next. One reader asks whether EIDL can be used to pay shop rent and that seems to be a very reasonable use of working capital funds. 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